Lease Partners Corp. v. R & J PHARMACIES

• Decision Date: 26 March 2002
• Docket Number: No. 1-00-2664, No. 1-00-2668., No. 1-00-2667
• Citation: 263 Ill.Dec. 294,768 N.E.2d 54,329 Ill. App.3d 69
• Parties: LEASE PARTNERS CORPORATION, Plaintiff-Appellant, v. R & J PHARMACIES INC., Wells Yeager Best Co. Inc. and Steven Klink, individually, Steve Randall, d/b/a Randall Pharmacy and Steve Randall, individually, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

768 N.E.2d 54

329 Ill. App.3d 69

263 Ill.Dec. 294

LEASE PARTNERS CORPORATION, Plaintiff-Appellant, v. R & J PHARMACIES INC., Wells Yeager Best Co. Inc. and Steven Klink, individually, Steve Randall, d/b/a Randall Pharmacy and Steve Randall, individually, Defendants-Appellees.

Nos. 1-00-2664, 1-00-2667, 1-00-2668.

Appellate Court of Illinois, First District, Second Division.

March 26, 2002.

Bruce N. Crawford, Askounis & Borst, P.C, Chicago, for Appellants.

Jeffrey D. Corso, William M. Brennan, Rock, Fusco & Garvey, Ltd., Chicago, for Appellees. Justice GORDON delivered the opinion of the court:

NATURE OF THE CASE

Lease Partners Corporation (plaintiff or Lease Partners) appeals from a decision of the circuit court of Cook County dismissing its breach of contract complaint for failure to pay Illinois state corporate franchise tax, pursuant to section 15.85 of the Illinois Business Corporations Act (section 15.85) (805 ILCS 5/15.85 (West 2000)), and for failure to file security for costs, pursuant to section 5-103 of the Illinois Civil Practice Code (section 5-103) (735 ILCS 5/5-103 (West 2000)). Lease Partners contends that the court misconstrued section 15.85 as requiring dismissal of the action, rather than staying the proceedings with directions that it pay the arrearage. Lease Partners also contends that the court exceeded its authority by sua sponte raising the issue of security for costs under section 5-103, and summarily dismissing its complaint. Lease Partners further contends that, on its face, section 5-103 violates the equal protection clause of the United States and Illinois constitutions and that the trial court's order denied it due process of law. For the reasons discussed below, we reverse the circuit court's dismissal of this action under both sections 15.85 and 5-103. Because our analysis of the proper application of each of these sections disposes of the instant appeal and grants the relief sought by Lease Partners, we do not reach Lease Partners' alternative constitutional challenges.

BACKGROUND

The facts, as outlined in plaintiff's brief to this court, were adopted unchallenged by defendants. Lease Partners is a California corporation with an Illinois office responsible for administering the contracts at issue. Defendants are R & J Pharmacies, Inc. (R & J Pharmacies), Steve Randall and Randall Pharmacies (Randall Pharmacies), and Wells Yeager Best Co., Inc. and Steven Klink (Wells Yeager). During 1993 and 1994, Recomm International Display Limited Corporation (Recomm), a non-party to this suit, sold equipment ("Advisory Boards"-which were designed to display advertising) to Lease Partners. At the time of the sales, Lease Partners executed leases for the boards with defendants, and Recomm delivered this equipment directly to defendants. Recomm simultaneously entered into separate agreements with defendants to rent advertising space on the boards.

In 1995, Recomm ceased to meet its obligations to defendants, who in turn ceased to make lease payments to Lease Partners. Ultimately, Recomm filed for bankruptcy and in 1998 the bankruptcy court entered an order modifying the leases between defendants and Lease Partners to reflect a total amount due. Each defendant failed to make payments under this order and Lease Partners brought suit against the defendants individually in the circuit court of Cook County.

On June 27, 2000, the circuit court dismissed Lease Partners' suit against one defendant, R & J Pharmacies, without prejudice, making the following conclusions of law:

"2) As a result of its failure to pay its current Illinois state corporate franchise taxes [Lease Partners] may not maintain any civil action in the state of Illinois, pursuant to 805 ILCS 5/15.85: and,

3) Pursuant to 735 ILCS 5/5-103, this action having been commenced without previously filing or causing to be filed a security for costs, the action should be dismissed." ¹

The court indicated that the ruling was based only on the above mentioned grounds and not upon R & J Pharmacies' previously filed "motion to dismiss" which contested personal jurisdiction. On July 10, 2000, the court dismissed plaintiff's complaint against Randall Pharmacy with prejudice, reaching the same conclusions of law quoted above. On July 12, 2000, the court dismissed plaintiff's complaint against the third defendant, Wells Yeager, in the same manner. No defendant made a motion to dismiss for failure to file security for costs.

Plaintiff appealed each of the dismissals to this court and moved to consolidate the cases based on similarity in issues presented. We granted plaintiff's motion.

ANALYSIS

Plaintiff contends that the trial court erred in dismissing its action against all defendants because the court misinterpreted section 15.85. Plaintiff argues that our courts have interpreted this statute as affording parties who are delinquent in paying their corporate franchise taxes an opportunity to pay those taxes and avoid dismissal. Defendants counter that the language of the statute contemplates a direct dismissal based on a tax delinquency and that the trial court did not err in ordering such a dismissal. We agree with plaintiff that the statute contemplates that courts should stay proceedings involving delinquent plaintiffs until such time as the franchise taxes are paid and does not contemplate a dismissal on this ground.

Section 15.85 states that "[n]o corporation required to pay a franchise tax, license fee or penalty under this Act shall maintain any civil action until all such franchise taxes, license fees and penalties have been paid in full." 805 ILCS 5/15.85 (West 2000). As this court has held, the word "maintain" means only "continue," and is not meant to bar a delinquent corporation from proceeding with an action. Amman Food & Liquor, Inc. v. Heritage Insurance, Co., 65 Ill.App.3d 140,147, 22 Ill.Dec. 242, 382 N.E.2d 562, 567 (1978) (appellate court reversed trial court's dismissal of corporation's action to recover under insurance policy because corporation was delinquent in paying franchise tax). Building on the foundation established in Amman, this court more recently noted that:

"[Section 15.85] should not be seen as an absolute bar to the prosecution of claims brought by corporations which are delinquent in the payment of their franchise tax. Nor should the section be deemed to extinguish those claims * * *. Rather, it serves merely as a temporary impediment to the completion of the action." (Emphasis added.) Merchants Environmental Industries, Inc. v. Montgomery Ward and Co., Inc., 252 Ill.App.3d 906, 911-12, 192 Ill.Dec. 534, 625 N.E.2d 689, 693 (1993).

We concluded, "it has long been recognized that a `suit could not be dismissed for failure to pay franchise taxes[,][i]t could only be continued until those taxes were paid.'" Merchants Environmental, 252 Ill.App.3d at 910,192 Ill.Dec. 534,625 N.E.2d at 692, quoting Sheffield Steel & Iron Co. v. Jos Joseph & Brothers Co., 238 Ill. App. 45, 49 (1925). Accord, Kaybill Corp. Inc. v. Cherne, 24 Ill.App.3d 309, 314, 320 N.E.2d 598, 603 (1974); Jorgensen sen v. Baker, 21 Ill.App.2d 196, 203, 157 N.E.2d 773, 777 (1959). Thus, we held that the trial court erred in dismissing with prejudice counterclaims filed by a delinquent defendant. Based upon this precedent, we conclude that the trial court erred in summarily dismissing the instant suit when the proper remedy is an order staying proceedings until the delinquency is rectified.

Defendants intimate that because the complaints were not dismissed simultaneously plaintiff was, in fact, afforded an opportunity to pay the taxes and avoid dismissal. We acknowledge that the record reflects that in its initial order dismissing plaintiff's complaint against R & J Pharmacies, the trial court noted that the dismissal was without prejudice and was based solely on plaintiff's failure to pay its taxes and to forward security for costs. The court further noted that the suit could be reinstated upon payment. The court issued this order on June 27, 2000, and did not issue its next order, dismissing the second suit with prejudice, until July 10, 2000. Defendants' suggestion that plaintiff had the equivalent of an opportunity to continue its suit is, however, of no moment. First, such an opportunity was not afforded plaintiff in its case against R & J Pharmacies, which the record demonstrates was dismissed without prior notice of the trial court's intentions. Furthermore, as illustrated above, our courts have held that section 15.85 is not grounds for dismissal in any event and thus, regardless of any de facto opportunity to pay that plaintiff may have been afforded, the trial court pursued an improper remedy.

Plaintiff also argues that this case is controlled by our supreme court's decision in Textile Fabrics Corporation v. Roundtree, 39 Ill.2d 122, 233 N.E.2d 376 (1968). Because that case decided the constitutionality of a statute not at issue here, we fail to see its relevance. In Textile Fabrics, the court held that section 13.70 of the Business Corporations Act, which states that "no foreign corporation transacting business in this State without a certificate of authority is permitted to maintain a civil action in any court of this State," (805 ILCS 5/13.70 (West 2000)), violates the commerce clause of the United States constitution when applied to foreign corporations suing on transactions involving interstate commerce. Textile Fabrics, 39 Ill.2d at 124-25, 233 N.E.2d at 377-78. However, the trial court in the instant case explicitly noted that plaintiff's failure to pay franchise taxes warranted dismissal under section 15.80 of the Business Corporations Act, which imposes franchise taxes on both domestic and foreign corporations, and it is therefore neither implicated in, nor controlled by, the decision in Textile Fabrics, which applies to certificates of authority required only of foreign corporations.

Plaintiff next contends that ...